The euro fell from a one-week high against the US dollar on Thursday after German industrial orders fell more than expected in March, signaling that Europe was facing growing headwinds from the war in Ukraine. .
The dollar had weakened after the Fed raised interest rates by 50 basis points. Hedge funds reduced their extended long positions after Fed Chairman Jerome Powell told reporters later that policymakers were not actively considering 75 basis point moves going forward. But the U.S. currency saw fresh demand in London after Germany reported industrial orders in March suffered their biggest monthly drop since last October.
As pressure mounts on global policymakers to rein in soaring inflation, the German data raises questions about how quickly the European Central Bank can afford to tighten policy without stifling economic growth. Money markets are expecting an interest rate hike from the ECB as early as July. “The German data was terrible and the dollar is regaining some lost ground,” said a trader at a European bank.
The dollar index slipped 0.9% from a nearly two-decade high at 102.450 following the Fed’s decision, but rose 0.4% in early trading in London to 102, 82. The single currency, which briefly hit a one-week high of $1.0639 on Thursday, gave away gains and fell 0.2% to $1.06020. It hit a low of $1.0470 in early 2017 last month.
Expectations of a hawkish Fed have weighed heavily on markets this year and propelled the dollar higher. It is up more than 7% so far this year against a basket of other major currencies, on track to make its biggest annual gains since 2015. But with its index now around 103, investors are skeptical. ask whether the dollar has the legs to rise more than 15% to its 2002 highs or fall back by a similar margin to the 2017 and 2020 lows.
“The only thing that can change the outlook for a significantly stronger dollar is a weakening US economy,” said Kenneth Broux, currency strategist at Societe Generale in London. The pound fell more than 0.5% to $1.2561 ahead of a Bank of England (BoE) meeting in which traders fully priced a 25 basis point rate hike.
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